Tax Plan Dissected Lobbyists Ponder Rostenkowski Alternative

By Anne SwardsonBy Anne SwardsonSeptember 27, 1985

Business lobbyists thronged the halls of the Longworth Building yesterday waiting for details of House Ways and Means Committee Chairman Dan Rostenkowski's tax proposals. How they liked what they saw probably depended on the interest for which they worked.

The alternative to President Reagan's tax overhaul plan would curtail numerous business deductions, including those for depreciation write-offs, oil drilling and research. But it would also soften some proposals opposed by insurance and exporting companies, and would eliminate entirely a Reagan proposal to raise taxes on firms that had deferred large amounts of taxes through write-offs for investment over the last few years.

Rep. Raymond McGrath (R-N.Y.) noted with irony the fact that Rostenkowski had wiped out that "recapture" tax entirely but had only compromised on preserving the deduction for state and local taxes. "Somewhere their priorities are screwed up," he said. "They're willing to give large corporations more than they are willing to give to the taxpayers."

Rostenkowski emphasized yesterday that his proposals, which would replace about half the elements in the Reagan plan, are just a point from which the committee will begin restructuring the tax code.

Here are the principal business-related provisions of the Rostenkowski alternative tax plan:

*The top tax rate for corporations would be dropped to 35 percent from the current 46 percent. Reagan had proposed a cut to 33 percent, and business lobbyists whose companies favor tax revision had conditioned their support on a corporate tax rate no higher than 33 percent.

*Depreciation -- the schedule under which companies write off their investments in plant and equipment -- would be made less generous than in current law or in the Reagan plan. The president's proposal to link the value of assets to inflation for depreciation purposes would be dropped, and the time periods and rates at which assets could be written off would be lengthened.

*The investment tax credit would be repealed. Transition periods would be incorporated into the law, but only for investments already contracted for as of Wednesday. No transaction made after that could qualify for the credit.

*Capital gains, profits on the sale of an asset, would be taxed at higher rates than in the Reagan plan. For individuals, the top effective rate would be 21 percent. It now is 20 percent and the Reagan plan would set it at 17.5 percent. For companies, the top capital gains rate would be 35 percent.

*Business persons could deduct 75 percent of the cost of business meals and 50 percent of entertainment expenses. The Reagan plan would have limited meal deductions to $25 per meal per person, plus half of the excess over $25, and disallowed deductions for entertainment costs entirely.

*The research and development tax credit would be retained, as Reagan proposed, but more limited.

*Oil and gas producers could no longer deduct a flat percentage of their income to cover "depletion," and fast write-offs of certain drilling costs would be disallowed. Those changes are more restrictive than the Reagan proposals.

*The president's proposed deduction for 10 percent of dividends paid would be phased in at 1 percent per year over 10 years.

*The minimum tax for individuals and corporations would be raised to a rate of 25 percent, and more deductions would be limited.

*The Reagan proposals to require companies with operations in other countries to allocate the foreign tax credit against income earned in each country rather than on an average basis would be dropped.